Net neutrality debate: a case for Free Basics

With Facebook going all out to push its Free Basics in India, internet neutrality has become the cyber-debate of the day, with arguments getting a little emotive rather than objective. Let us step back for a moment and look at the historical perspective.

The concept of net neutrality originated from American telecom giant AT&T'a breakup into Baby Bells, and in the UK, the privatisation of BT (British Telecom) in the mid 80's – where the issue was that the 'last mile' ought to be 'unbundled' and the Baby Bells and BT should not continue to enjoy privileged and restrictive access to their service areas, or a 'walled garden' with respect to content, pricing and speed. And they should allow third parties to also access the last mile in search of eyeballs.

Net neutrality as a concept appears fair and egalitarian, so it is hard to oppose without sounding exclusivist. Therefore, the discussion on the issue needs to happen within a specific context, and not to a general concept. Ideally, it may help if the Telecom Regulatory Authority of India (Trai) puts out a concept paper of operations and business architecture to show how net neutrality is supposed to work.

While the devil is always in the details, arguing to a concept will not help. Specifics are needed to assess and evaluate the various scenarios that are likely to occur in any proposed solution.  

Let's try and build such a specific context.

Net neutrality is essentially for allowing competition through access, not pricing or speed. Let's allow speed to be part of the debate in our specific context since it is a hot topic. 

Therefore, one must allow unhindered access for all without prejudice and at comparable speeds and downloads based on one's data plan and caps, with no walled garden - at the same time recognizing that, spectrum being a scarce natural resource, unlimited bandwidth for all is not practical.

I am putting down some principles on the contours of such architecture:

• The provider can allow for sponsored plans, without any prioritisation, as long as non-sponsored or paid content plans thereafter come at a better price point. So, the social welfare curve shifts as cost per MB and monthly bills come down. Assuming there is elasticity, total revenues should go up. Hence, there is more revenue to telco's to  help them cover costs.
• I am in favour of the Ramsey's principle applying here and de facto it is being applied by telcos and other service providers. What this principle says is that the price mark-up should be inverse to the elasticity of demand: the more elastic demand for the product, the smaller the price markup.

For example, Indian banks offer differentiated interest rates on fixed deposits above Rs15 lakh (market discovery), as also for all savings accounts above 1 lakh. Two similar products, but differentiated prices based on relative elasticity of demand without any significant service upside,

• There should be no speeding up/slowing down of the 'paid' or 'sponsored' bits.
• There should be no prioritizing for either, viz, equal carriageway for all. No discrimination.
• The idea that one should pay more for greater bandwidth - differential pricing - makes sense.  The flip side is, having a convincing argument that the 'aam aadmi ' user does not get shortchanged in the process.  One way to ensure this is to have virtually unlimited bandwidth else the provider would have to splice to allocate.
• But unlimited bandwidth is not practical. In the UK Andrew Ellis, Professor of Optical Communications, Aston University, has recently proposed (May 2015) 'rationing' the internet, because the internet consumes 8 per cent of UK energy production (equivalent to 3 nuclear power stations!), and the current internet infrastructure can't support unlimited usage without further capital expansion.

The way to get around this is allowing for differential pricing, with heavy users and those requiring higher bandwidth paying a higher price. So tiered pricing could be considered. Nothing is wrong with that. The acceptable analogy is; different vehicles pay different rates on an expressway, while they all zip down it unhindered.

Therefore, tiered and differential pricing is the key. Sponsored data does help in keeping the tiers and pricing honest. I think, in stage 1, it allows access to everything at equal speed, paid or free, with no speed traps or boosts. In stage 2 as the user and market matures, you may have to allow for some segments to enjoy quicker speeds at some premium.

Here is an analogy to mull. Doordarshan has introduced FreeDish - a free to air channel platform, which is reported to be popular in 77 million rural homes.

Private channels are clamouring to join FreeDish as it gets them huge eye balls. Several have bid significant amounts in the auction to get onto FreeDish. The result? Hitherto pay channels have become free to air to be able to just get that audience and gain higher TRPs!

One could argue that DD is acting as a walled garden, by being mercantilist and auctioning slots on its platform! Since Facebook is not even doing that, can it really be accused of harbouring a monopolistic or commercial agenda?

Sure, Facebook seems to want to add millions of new users in India and elsewhere (don't Google and Twitter?), and is willing to carry others on its platform to also reach those users.

Unfortunately, Facebook's problem is it has been hurt by its confusing communications message.

As a result, the net neutrality debate has been limited to confusing access for speed and not addressing the larger issue of reaching the masses as in Doordarshan's FreeDish model.

Surely, what is sauce for the goose, is sauce for the gander, too.